The document summarizes a talk given by Sudhakar Ramakrishna, VP of Motorola, on the topic of reverse innovation and how firms can tap market potential in emerging economies. Some key points: 1) Ramakrishna discussed how increasing broadband penetration leads to economic growth and opportunities for innovation. However, India faces infrastructure hurdles to enabling widespread broadband access. 2) He argues that wireless broadband may be the best solution for India given high mobile adoption rates. This presents an opportunity for reverse innovation in telecom infrastructure. 3) Ramakrishna advises thinking unconventionally and not being afraid to fail, as failure can teach valuable lessons. Indian organizations still lack

1. EMERGENT
EMERGENT Issue 1 - 25 July 2010
A fortnightly
newsletter
brought to you
by the Emerging
Markets Club at
the Indian School
of Business
Reverse Innovation to Tap Market Potential in
Emerging Markets
A talk by Sudhakar Ramakrishna - VP, Motorola
Abhishek Nag and Prerna Jain
‘Reverse Innovation’, a term introduced in a communication. This leads to the creation of new
landmark HBR article by Dartmouth professors opportunities and economic models. Case in
Vijay Govindarajan and Chris Trimble and GE’s point, YouTube would not be possible without
Jeff Immelt, refers to an innovation seen first, or widespread broadband access. India has one of
likely to be used first, in the developing world the lowest broadband penetrations in the world.
before spreading to the industrialized world.
This presents an opportunity for firms and
The focus of Sudhakar Ramakrishna’s entrepreneurs to further innovate, address
talk was how firms can use reverse innovation to untapped opportunities and affect the growth of
tap market potential in emerging economies. India’s GDP directly and indirectly.
Addressing a lecture theater filled to
India faces major infrastructure hurdles
capacity, Mr. Ramakrishna started the session by towards enabling broadband access. The current
quoting a study which has established a causal copper wire cables were never laid in anticipation
relationship between broadband penetration and of the high bandwidth. Adding new capacity
through optical fiber cables is going to be
per capita GDP growth. He explained that
expensive and time consuming. The only way out,
looking a little further, it is not hard to understand appears to be wireless broadband. This is a boon
why; if a government or entity takes conscious in disguise. We already have the business systems
efforts to increase broadband penetration, it in place for wireless access. Today, India adds the
spends on infrastructure (like laying fiber cables, equivalent of half of Canada’s population (15
building wireless towers etc.). This leads to job million) to the mobile phone subscriber base every
creation and a general fillip to the economic day! So, not only does India need broadband,
ecosystem in a region. wireless broadband is perhaps the only way to go.
A deliberate focus on increasing
“So, where is the opportunity for reverse
b ro a d b a n d p e n e t r a t i o n a l s o f a c i l i t a t e s innovation in all this?” asked Mr. Ramakrishna.
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2. EMERGENT Issue 1 - 25 July 2010
“Reverse innovation is not only about cost
reduction. India is not only about low
cost. Cost is important, but, not critical.
Innovation has to be tangible and
sustainable and being low cost is never
sustainable.”
Sudhakar Ramakrishna
India’s largest import in Q4 2009 was telecommunications Sudhakar Ramakrishna is the Corporate Vice President & General
infrastructure. Can we supply this massive local demand with Manager, Wireless Broadband Access Solutions and Software
local products instead? We have examples which suggest that Operations at Motorola Home and Networks Mobility. At Motorola, he
we can. Taiwan has an estimated 500,000 WiMAX leads global teams that are responsible for the design and deployment of
subscribers. Yet, Taiwan is one of the largest exporters of 4G products and solutions for operators worldwide. His teams are also
responsible for creating and driving revenue growth with innovative
WiMAX equipment today. This is mainly because of
software solutions that enable media mobility. Prior to Motorola, Mr.
government support in the manufacturing and marketing of Sudhakar Ramakrishna was Vice President of Product Operations at
WiMAX devices. We could examine what steps Taiwan took Stoke Inc.
and learn from them
Mr. Ramakrishna holds an MBA from Kellogg and a Master in
Shifting gears, Mr. Ramakrishna said, “Reverse Science in Computer Science from Kansas State University. He holds and
innovation is not only about cost reduction. India is not only has filed several patents in telecommunications engineering..
about low cost.” Cost is important, but, not critical, he said.
Innovation has to be tangible and sustainable and being low
cost is never sustainable. India needs to learn to build
products to address local needs and then proliferate these
innovations to the world. India does not have a talent
problem but rather needs a more specialized, focused talent.
In the final leg of his talk, Mr. Ramakrishna had some
highly relevant advice for ISB students. “Think about
unconventional ways of progressing in your careers. In the
beginning, the going will be uphill, but, you will see much
greener pastures later in life.” He also strongly encouraged
young Indians to not be held back by the fear of failure. This
is largely true and perhaps more so in the context of reverse
innovation. “It is far simpler to believe in time tested concepts
and ideas. Don’t hang on to ideas too long. Failure will teach
you many things but it’s important to fail fast and then get Info Box
back up and try again.” The only caveat to this - Indian One of the most common misconceptions about ‘reverse
organizations still do not have a culture of encouraging innovation’ is that it is the same as ‘disruptive innovation’.
failures.
Mr. Ramakrishna ended his insightful and inspiring The HBR blog post Is Reverse Innovation Like
talk with a quote from the CEO of a large retail chain who Disruptive Innovation? clearly illustrates the differences
when asked what kept him awake at night, replied, “I fear the and relationships between the two concepts.
day when my employees are not making enough mistakes!”
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3. EMERGENT Issue 1 - 25 July 2010
It’s Speculation Vs. Regulation
Anjani Bansal, Business and Finance Coordinator, Emerging Markets Club
Sovereign risk, until recently, was a term reserved for the • It provides international portfolio diversification to
developing world. All episodes of debt default in the past lenders.
four decades originated in these countries. This happened • Helps in development of nascent financial markets.
even when these countries had a debt-to-GDP ratio below • Reduces borrowing costs for government and private
most advanced countries and well below the limit of 60% sector which makes it easier to deal with fluctuations and
specified in the Maastricht Treaty of the European Union. income and smooth consumption.
A typical response from foreign investors to default is capital
flight leading to currency depreciation. However, 2010 has The “Absorptive Capacity” of economy to divert
so far seen the same game being played in reverse with increased capital inflow towards investment and away from
capital rushing into emerging markets as sovereign risks consumption is important in withstanding the negative
increase in developed countries. In addition, near zero effects of large capital inflows. An efficient financial system
interest rates in developed world have made investors chase has a big influence on that. For example, the lack of a range
higher yields in emerging markets. of financial instruments may also divert capital to more
Emerging economies, particularly Asian countries, speculative investments like real estate. A less developed
who are receiving this capital, are trying to put regulations bond market makes it difficult for the central bank to
and systems in place to deal with the double edged sword of implement capital controls or sterilization tools. This
Foreign Portfolio Investments (FPIs), also called increases the chances of “Dutch Disease”, where excess
“ S p e c u l a t i ve C a p i t a l ” . T h e m e m o r i e s o f t h e inflows cause negative effects like currency appreciation and
unpredictability of foreign capital are still fresh from the decline of export competitiveness.
financial crisis of 1997. There are several reasons why
EMEs are wary of excess capital inflows:
• FPIs increase volatility in exchange rates which
makes executing monetary policy difficult for the central
bank.
• Currency appreciation that follows capital inflows
hurts exports of EMEs. This has strong negative effects
particularly on export dependent small open economies
like South Korea.
• It may lead to credit expansion as commercial banks
intermediate these inflows. This may lead to rise in
consumption or inflate prices of equity, real estate or
other assets. The figure above shows the strong
correlation between stock market performance and FPIs
into India. Experience in past crisis has established a
causal relationship between FPIs and asset prices.
• Inflation is another important factor for EMEs.
India, currently grappling with core inflation at above To maintain financial stability in the face of large
10%, is rightly more cautious about FPIs. influx of capital, EMEs have adopted a range of regulations
and capital sterilization tools. For example, South Korea has
• Capital inflows increase foreign exchange reserves
and these reserves are used to buy domestic currency. placed limits on foreign exchange transactions that add to
This increases the money supply leading to inflation. the Won’s volatility. Even the IMF, which has historically
supported opening up of financial markets by EMEs, is
• Countries try to control inflation through “Capital
Sterilization” which is essentially reducing monetary base recommending capital controls to tackle inflows. Countries
through open market operations, promoting private have several direct and indirect sterilization measures at
investments overseas and other methods. However, this their disposal. However, developing countries are taking a
may backfire as interest rates may increase causing cautious approach as no one wants to reverse the trend of
further increase in capital inflow and reducing investment financial liberalization.
and output.
Anjani Bansal is the Coordinator, Business and Finance at the
Developing countries are increasingly adopting policies of Emerging Markets Club at the ISB. At the United Nations
financial liberalization and have reaped benefits of Development Program he worked on developing sustainable livelihood
increasing investments and encouraging economic growth. options and capacity building of local governance to implement the
Increased capital inflow has its advantages: decentralization schemes of the GoI. Prior to that, he worked at
Morgan Stanley, New York, in the equity derivatives division on pricing
• It supplements domestic savings and stimulates and risk management of equity derivatives products.
growth. He holds an MS in computer science from the University of
Louisiana at Lafayette and is specializing in analytical finance at ISB.
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4. Speaker Session Events
EMERGENT Issue 1 - 25 July 2010
By the Emerging Markets Club
India - The Kutcha Road to Talk on Education and Skilling
Riches By CEMS
By Prof. Krishna B Kumar “India is among the world’s largest market for education and
training”. This statement set the tone for the presentation by
Although “India Shining” did not get the BJP too far, India Nimesh Mehta, who heads the Education and Skilling
today, truly is shining. With a GDP growth rate consistently vertical at CEMS. He was supported by Radhika
above the 9% mark before the global recession hit, India is Khandelwal from CEMS, Kartik Srivatsa from SONG
the eleventh largest economy by market exchange rates Investment Advisors, Mohit Varma and Deepak Agarwal
(standing at a elephantine $1.2 trillion). India is also known as from CAS. There has been a lot of talk about the inherent
the knowledge laboratory of the world; in sharp contrast to potential of the Education and Skilling sector in India and
the days it was the country losing much of its human capital understandably there was a lot of student interest. An
through brain drain. In spite of these stellar grades on our audience of nearly 40 students turned up for this event, just a
report card, inequality exists and is probably far worse than couple of days before Term 2 end-term exams!
many of us imagine. During the session, it was highlighted that there is a
Professor Krishna B Kumar’s talk focused on lot of latent demand for education and this is being coupled
highlighting these inequalities. For every problem, he also with a rise in disposable income across all segments in India.
threw tantalizing hints in the direction of possible solutions. The government despite its best efforts has not been able to
provide an adequate infrastructure to meet the demand. This
has opened up a number of opportunities for entrepreneurs
and firms to provide business solutions in the sector. 80% of
the fund managers are looking to invest in the education
sector due to factors like the high rates of return, revenue
predictability and to meet the large unmet demand.
The education sector can be looked at as comprising
of 4 distinct segments – pre-schools, schooling and tutorials,
higher education and test preparation and vocational/
corporate training. The schooling and tutorials segment
offers opportunities in areas like content, test preparation,
teacher training and supplies and management. Some of
these areas can be extended to offer solutions in the higher
education segment as well. A relatively untapped segment is
Addressing a capacity audience of close to 100 the vocational/corporate training sector and a lot of activity
students, Professor Kumar stressed the need for equality not is happening in this segment.
only as a moral imperative, but also as a political imperative
to ensure stability and progress of reforms.
One of the biggest reasons for the increasing
inequality between the middle class and the poor (80% of
India’s population subsists on less than $2 a day) according to
Professor Kumar is the lagging productivity in the
agricultural sector. Through hard-hitting data and charts, he
then went on to prove that the biggest driver for this abysmal
productivity is the low penetration of education. So much so
that education levels and agricultural productivity track each
other nearly perfectly. Professor Kumar also made the case
for better infrastructure and the availability of technology in
the farming sector. Professor Kumar suggested that the only
levers to inclusive and sustainable growth for India are
education, infrastructure and health. As closing comments,
he stressed that simultaneously addressing high-tech and
This was a very informative session as the entire
inclusive growth, is one of India’s greatest challenges going value chain of the sector was mapped. Opportunities were
forward; necessary because capitalism and entrepreneurship highlighted across the entire spectrum from scalable online/
are really tools for everyone to prosper not just the rich. technology models, vocational training to infrastructure
The audience was left truly inspired by the talk and building. To round off the session, Kartik Srivatsa give an
the Q&A session lasted for an hour. A comment from one of investor’s perspective into the sector. All in all, for the
the attendees - “This is exactly what I came to ISB for!”. attendees it was an hour well spent and we hope to have
more such events in the future.
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5. Articles of Note From the World
EMERGENT Issue 1 - 25 July 2010
Relevant to Emerging Markets
Urbanization Diageo Plans to Launch Local Brands in India
Diageo, the world’s largest maker of alcoholic drinks
Comparing Urbanization in China and India including Johnnie Walker whisky and Smirnoff vodka, plans
China and India are both urbanizing rapidly, but China has to launch some local brands in India after a break of eight
embraced and shaped the process, while India is still waking years.
up to its urban realities and opportunities. Read more in this
insightful McKinsey Quarterly article.
Business and Finance
Indian Public Private Partnership Project Headlines Mexico: Downward Drift
A smattering a headlines related to public private Latin America’s second-largest economy is just emerging
partnerships, from the government of India. from its worst downturn since 1932, contracting 6.5 per cent
last year. Average annual growth since 2000 has been a
Education disappointing 1.9 per cent – considerably lower than the 3.2
per cent racked up by Brazil, Latin America’s largest
Skill Training Institutes Likely to See Capital Influx economy, or the regional average of 3 per cent. Instead of
Higher education, corporate training and vocational skill accelerating down the path of development, Mexico seems to
training will attract private equity and venture capital in the have lost its way.
short term, while school education will do so in the longer
term, says a new report, Education Sector in India, from
investment bank Avendus Capital Pvt. Ltd. Sports Management
IMG, Reliance in Deal to Develop Indian Basketball
Too Cool for School Sports and entertainment agency IMG and Indian
A TechCrunch article on how innovative companies are conglomerate Reliance Industries have scored an agreement
using online/mobile education to reach the bottom of the that could eventually lead to the formation of an Indian
pyramid in emerging markets like India. professional basketball league.
Public Policy and Governance
E-governance to Combat Corruption in the Asia
Pacific Region
The introduction of ICT can reduce corruption by
improving the enforcement of rules, lessening the discretion
of officials, and increasing transparency. This article from the
Asian Development Bank examines through cases, the
successes and challenges of using e-governance to reduce
corruption.
Lifestyle Businesses
An Interview with Dilip Kapur, Founder and
President of Hidesign
Hidesign is a hippie brand that was born in the late 1970s.
Today, it’s a flourishing 30-year-old that is mainstream in
both its availability and its brand values. Dilip Kapur,
founder and president of the Puducherry-based company, is
now straddling the upmarket, luxury end of the business with
Louis Vuitton buying a stake in his company and also wooing
the value-conscious Indian shopper with Holii, his
partnership with Kishore Biyani’s Future Group. If you want to write for EMERGENT or have feedback for
us, please email:
Auromatrix to Roll Out More Aloft Brand Hotels of
Starwood Santosh Reddy N
Chennai-based Auromatrix Hotels, which is into hospitality President - EMC, Class of 2011
business since 1990, has charted out plans to roll out more
"Aloft" branded four star properties of Starwood Hotels & Abhishek Nag
Resorts World-wide Inc. Knowledge Initiatives Coordinator - EMC, Class of 2011
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